A brief surge in consumer confidence over the Christmas period appeared to evaporate in February after a fall in retail sales and a slowdown in the all-important services sector.

The British Retail Consortium reported that retail sales values were down 0.3% on a like-for-like basis from the same month last year, when sales had already fallen 0.4% on February 2010.

Economic activity in the services sector, which covers banking to hairdressing, remained positive during February, but could only register 53.8 compared to 56, which had been a 10-month peak, in January.

The combination of weak high street sales and a slowing services sector will trouble the chancellor George Osborne as it comes after manufacturers reported lower sales in February.

Until last week, economic indicators revealed a more positive mood and many economists predicted the UK would narrowly escape a double-dip recession. The latest surveys of business health appear to show that trend has reversed.

Osborne is expected to tell parliament later this month that the choppy and unpredictable nature of the recovery continues to restrict his room for manoeuvre.

He is expected to reject calls for his budget on 21 March to provide a spending boost in response to the weakening economic data.

"Falling inflation has eased the squeeze on household finances and halted the slide in consumer confidence but that's at risk from fuel price rises and budget uncertainty. Unemployment is expected to rise further causing increased nervousness about job security, which is keeping confidence fragile. Any sense of improving optimism is not yet translating into more spending."

The BRC said food sales picked up, helped by customers who felt the need to stock up in the very cold weather, but non-food sales weakened further, despite a bonanza of promotions and discounts in the post-Christmas sales.

A squeeze on household incomes affected clothing, footwear and homewares more than other areas, with larger purchases especially badly hit.

The Markit/Cips purchasing managers' index for services, which accounts for around 75% of economic activity, defied expectations that it would slow only slightly by dropping to 53.8 from 56, though it remained well above the 50-mark that separates growth from contraction.

On a positive note, confidence about the year ahead climbed to the highest level in 12 months, with more than half of services firms voicing optimism about their prospects against one in 10 who were downbeat. Employment also edged higher.

The performance of the UK services sector contrasts with that of the eurozone. Separate data, released on Monday, showed the eurozone services sector contracted last month, in a blow to hopes that the region will avoid slipping back into recession.

Alan Clarke, an economist at Scotiabank, said the UK PMI data was "disappointing, but not the end of the world".

"Overall, the PMIs are consistent with a moderate pace of expansion in overall GDP – broadly in line with what the Bank of England has assumed," he added.

Other PMI releases last week showed that UK manufacturing also slowed last month while construction output grew at the fastest pace in nearly a year.

Taken together, the surveys suggest the economy will return to modest growth in the first quarter and escape a double-dip recession assuming there is no further loss of momentum in March, said Chris Williamson, the chief economist at Markit.

The British economy shrank by 0.2% in the final three months of last year.